They're Drilling in the Oil Patch Again

By JOHN HOLUSHA

Published: June 17, 1990

MIDLAND, Tex.—
Lord, they ask here in West Texas, let there be one more boom. Oil boom, of course. Then, again, no one here is exactly sure whether West Texas or the rest of the nation could actually produce one more boom. The oil people are asking themselves whether the nation has conceded too much power over oil prices to the Persian Gulf or whether too much of their old boom-time rigs and labor has simply disappeared.

Still, some of the region's prayers are now being answered, as is clear from the smiling face of Jack N. Blair when he talks about his new oil well. His so-called ''rank wildcat'' - a well drilled on the basis of ambiguous geologic data, on distances from existing wells and on a successful wildcatter's intuition - is gushing 500 barrels of crude a day. ''The major oil companies would not have drilled this prospect; it's a low-relief structure that is not easy to identify,'' he said with undisguised glee.

Nor is Mr. Blair alone in bringing new energy and renewed economic life out of the ground on this ancient seabed, known as the Permian Basin, which is one of the richest oil fields in the world.

The number of drilling rigs in operation here has increased by about 25 percent, to 123, during the last year. Nationally the rig count is up to 940, and analysts expect the number to hit 1,000 before 1990 has ended.

A Glum Mood

But ''undisguised glee'' is not the correct phrase to describe the general mood in Midland, a city of 95,000 and the economic center of the area. ''We're surviving,'' is the way L. Decker Dawson, president of the Midland-based Dawson Geophysical Company, which does seismic testing, puts it.

The long, lean years of depressed prices in the 1980's have caused experts in the American oil business, some 25 percent of which is generated in West Texas, to believe that the country's capacity to produce another boom or respond fully to another cutoff of imports has been seriously weakened. It is crucial, they say, that several factors be successfully combined if the nation is to regain a substantial measure of that capacity. More favorable prices and an expanded labor pool are two, but new and improved equipment, new technology, a more coherent national energy policy - these are regarded as essential as well.

In 1979, when the the collapse of Iran's oil industry sent prices soaring, there appeared to be no limit to oil prosperity. Within the three years, the number of rigs in operation in the United States soared to 4,500 from about 2,000, and the price-per-barrel topped $30. But during those heady times, many operators jumped into risky deals that depended on anticipated prices of $40 or $50 a barrel. Nirvana never came. The price peaked in 1981 and began to slide in 1982, when it fell to as low as $10, and those deals, along with a good many businesses, collapsed. By 1986, the number of rigs in operation dropped to 700 before starting slowly to rise again.

Now, prices appear to have stabilized at about $18, which has fired up the resurgence in drilling.

In fact, the drilling boom of the early 80's only temporarily reversed a long-term decline in domestic production. Since then, the nation has grown increasingly dependent on foreign oil. The United States now imports about eight million barrels a day, or about 48 percent of the 16.5 million barrels being consumed. And the increase in exploration that has been occurring during the past year has not significantly changed that trend.

Yet vast amounts of oil are still believed to lie here beneath the parched Texas ground and in other regions of the country.

Getting enough oil up and out to increase American production dramatically is another matter. For one thing, it is being found in smaller and smaller pools, and, for another, any large-scale increase would require workers and rigs and materials that are simply no longer available. Oil workers discouraged by long periods of unemployment have drifted off to other parts of the country, since there are few blue-collar jobs outside the oil industry here. Indeed, unemployment in the Midland area is a modest 5.1 percent. ''The people who are still here are working,'' said William Kerr, a Midland attorney. ''The surplus labor has departed.''

Similarly, many professionals have left the field. The work is very specialized. ''People were forced to go into other fields to find work,'' Mr. Dawson said. The Society of Exploration Geophysicists, for example, has seen its membership shrink 25 percent, from a peak of 20,000.

Idled drilling rigs have been cannibalized for parts by drilling contractors who could not afford to buy new parts. And drilling pipe, which has a relatively short operating life, could quickly become a critical bottleneck during a new oil boom, since little new pipe has been produced for years.

Danger on the Rigs

''I've got 15 rigs operating now out of a fleet of 56, compared to an average of eight in fiscal 1989,'' said Joe G. Roper, president of TMBR-Sharp Drilling Inc. in Midland. ''But if I got an order for 10 more rigs tomorrow, I could not staff them. It would take years to do that.'' Drilling is inherently dangerous, involving heavy, fast moving equipment. If inexperienced people were put to work on the rigs, he said, accidents would be inevitable, which could elevate insurance rates. ''You have to take it up real slow,'' he said. The reduction in capacity is not restricted to the Permian Basin. C. Paul Hilliard, chairman of the Independent Petroleum Association of America said, ''A lot of service and supply companies died in 1986 and 1987,'' when the price of oil bottomed out at $10. In Lafayette, La., where his Badger Oil and Gas Ltd. is located, there were once as many as 1,029 companies serving and supplying oil explorers. By 1987, the number was down to 372.

Oilmen have gotten little guidance from the Federal Government over the last decade. Officials in Washington do now say, however, that they recognize the dangers of increased dependence on imports. ''It is not acceptable to have substantial disinvestment in oil and gas,'' Linda Stuntz, deputy under secretary for policy, planning and analysis at the Department of Energy, said in an interview. She said the department is preparing an energy strategy which is to be submitted to President Bush before the end of the year.

But as Jack Blair is demonstrating, there is still oil to be found and money to be made in the oil patch.

At 500 barrels and $18 a barrel, his well is producing $9,000 in revenue each day it operates. That means the approximate $900,000 cost of drilling it will be recovered in a little over three months. After that it will produce a steady stream of income for Mr. Blair, who has a 25 percent interest, and his major partners, the Moncrief family of Ft. Worth.

Born Into the Business

He is, in fact, a classic Texas wildcatter, with an expansive manner and instinctive approach to drilling, the entrepeneur who learned the oil business by growing up in it. He does not, like some, put longhorns on his Cadillac. His Fleetwood is equipped with a sophisticated radar detector so that he can drive fast enough to cover the long distances common here without running afoul of the police.

''I was born into the business up north in Electra'' near the Oklahoma border, he said. ''My father was a driller and oil producer.'' Now two of his sons work with him, one as a land man, or leasing agent, and another as a field supervisor.

The original idea for his new well, designated the No. 1 Weatherby, came from an independent geologist, George Ulmo. His track record with Mr. Blair is good. ''I've dug the last four deals he brought me and three of them produced. I like that,'' Mr. Blair said.

After persuading his investors to sign up for the deal, Mr. Blair arranged for Mr. Roper's company to drill the hole and for such things as drilling mud to lubricate the drill and flush out rock chips. Most of the contractors are people he has been doing business with for more than 30 years. Indeed, TMBR-Sharp is an equity investor in the well, which is why the drilling cost is lower than the $1.2 million industry standard.

''We tend to use old friends who have stuck with us,'' Mr. Blair said. ''I had some trouble paying bills for awhile and they said, 'Pay us when you can.' ''

In times past the well would have been a gusher spewing out-of-control for days, because of the intense pressure of the gas associated with the oil. With modern technology the underground pressure is containable, and the only indication is a gauge on top of the wellhead: The oil is emerging from the ground now at an unusually high 700 pounds per square inch of pressure. Mr. Blair , who is 64 years old and has operated as an independent wildcatter here since 1987, said he survived the depression of the late 80's because he had relied largely on equity investors, not borrowed money. ''I've had the same investors for years; they're good oil people. We never stopped working.'' But he had to shrink his business, closing offices in Oklahoma, southern and eastern Texas. And he had to sell his airplane, a twin-engined Merlin. ''The first thing an oil man does when he makes some money is buy a ranch and an airplane,'' Mr. Blair said. ''A few more wells like this and I'll be looking at them again.''

Indeed, he is now busy drilling another well near No. l Weatherby to gauge the size of the field, which is down more than 12,000 feet. He estimates that each well will produce 600,000 to 700,000 barrels of recoverable oil, but at this point he not sure how many wells the field will support.

Expansion Unlikely

Historically, independent oil companies run by wildcatters have drilled 80 percent of the wells in the United States and produce about 41 percent of all the crude oil in the lower 48 states. They have for the most part found the smaller fields, whereas the major oil companies have focused on massive projects like Alaska and those off the seacoasts.

But there appears to be no great optimism that there will be enough expansion any time soon or enough massive projects in the works to lessen United States dependence on world markets. Too many of the dominating players in those markets are in the Middle East, where reserves are abundant and production can be adjusted quickly. ''There is no doubt that producers in the United States are price-takers, not price-makers,'' said John Lichtblau, president of the Petroleum Industry Research Foundation.

Most forecasters, in fact, believe the United States will rely more on imports rather than less, that American production will steadily decline at least over the next five years even as consumption increases.

But as supplies tighten, prices are expected to rise, with some industry leaders such as Lodwrick M. Cook of Arco predicting $25 a barrel oil by the mid-90's.

An increase in oil prices could, in turn, begin to accelerate the drilling resurgence and reduce dependence on imports. ''If prices went up four or five dollars a barrel, it might stop or slow down the decline in domestic production,'' Mr. Lichtblau said.

A key factor in whether the United States can fully revitalize its oil industry is whether needed capital will be available. Locally owned banks collapsed at the end of the boom and the out-of-state institutions that took them over have greatly tightened lending standards.

Little Interest in Loans

Samuel J. Atkins, whose North Carolina-based bank took over the remains of the First National Bank of Midland, said it is interested in increasing its energy loans to operators who have collateral in the form of producing properties. But many oilmen, who saw debt-laden competitors dragged into bankruptcy, say they are not interested in loans. ''I could care less if all the banks in the United States close their energy loan departments,'' said Mr. Hilliard of the wildcatter's association.

Midland oilmen say investors will return as economic conditions stabilize and operators like Mr. Blair demonstrate they still have, as the expression goes here, ''a good nose for oil.'' Another key is new or newly applied technology. Some oil explorers are borrowing techniques developed for offshore operations to recover oil from fields once thought to be exhausted. In addition to drilling vertically through the earth, they are drilling horizontally in an effort to tap fissures in the ground. Or more precisely, the drillers are boring down vertically from 6 to 10,000 feet, then a below-ground motor bends the bit, a little at a time. Gradually, degree by degree, the bit turns until it is horizontal. And then it can go on for up to a mile.

Thomas A. Sullivan, an offical of the Oryx Energy Company in Dallas, the nation's largest independent exploration company, said horizontal drilling is possible when drilling through a series of verticle geologic structures. ''You can tap more of them by drilling horizontally,'' he said.

Horizontal drilling appears to have revived the Pearsall field in southern Texas. This area was first drilled in the 30's, and many of the remaining wells were only producing a few barrels of oil a day. Oryx is now producing 12,000 barrels a day from 25 horizontal wells, according to Mr. Sullivan. Other companies have reported successes as well, and other regions, including formations in the Permian Basin, are being evaluated.

Horizontal drilling was developed for offshore fields because the enormous cost of establishing platforms in the open sea required that many wells be drilled from a common place.

The consensus here is that the old Texas ''elephant fields'' - those with 20 million to 100 million barrels or more of reserves - have largely been found. In fact, most of the major oil companies have moved or are planning to move their exploration operations out of the basin to concentrate on exploration in coastal waters and foreign locations.

That does not mean that they are giving up on the region. They expect existing wells to continue producing well into the next century, and, to help make that happen, they are injecting water and gas back into the ground. The injected materials penetrate the porous rocks containing the oil and force it toward well bottoms.

''The casing in some of these wells will corrode away before they are exhausted,'' said Richard Masterson, a geologist.

It does seem clear that all these factors, the persistent entrepreneurial spirit of the Texas wildcatter, the effective workings of supply and demand on price structures, new technology, new government policy - all will be needed if the nation's capacity to drill for the oil it has and wants.

He did not grow up in the oil fields in the mode of the classic West Texan wildcatter. He hails from the east - eastern Texas, that is - is still boyish looking and came to the oilfields only after earning a law degree.

But he has acquired six million barrels of oil reserves in the region - buying wells from operators in financial trouble.

''We do not buy from voluntary or willing sellers,'' he said. ''We buy from distressed individuals who have to sell.''

Mr. Wommack's company, Southwest Royalties Inc., operates more than 700 wells and has a nonoperating interest in an additional 4,000. Mr. Wommack said the slump in the oil patch provided his company with a one-time opportunity to buy producing properties. He does some drilling as well, but almost always in locations adjacent to producing properties.

The approach seems to be working. Southwest Royalties has grown from three people in 1983 to 58 now. With oil prices firming and drilling beginning to increase, he expects distress sales to cease within a year. Then he will have to drill more, and says: ''There are some places here where it is hard to drill a dry hole.''

HIGH HOPES FOR NATURAL GAS

Some wildcatters are hoping a revised Clean Air Act, now being considered by Congress, will produce increased demand and higher prices for natural gas.

Natural gas burns much more cleanly than other fossil fuels like gasoline, diesel and coal. So gas is increasingly favored by electric power plants that can switch fuels.

Natural gas can also power cars and trucks designed for gasoline, with modest modification, although the strong, large fuel tanks required can intrude on trunk space. If the new air pollution law mandates alternatives to gasoline in areas with particularly dirty air, natural gas may be one of the alternates.

''Oil consumption is not rising but the Clean Air Act may help in the gas market,'' said C. Paul Hilliard, president of the Independent Petroleum Association of America.

According to the American Petroleum Institute, the number of gas wells successfully drilled has been steadily rising in recent years andthe total is roughly equal to the number of oil wells complete.

As recently as 1985, three times as many oil wells were brought in as natural gas.